BizBuySell’s Insight Report is filled with key statistics and information on a range of topics, including the labor shortage and hiring problems that many businesses currently face. Visit BizBuySell for more information about the findings that they recently reported for the third quarter of 2021. This website also offers an archive of past quarterly reports dating back to 2013.
The pandemic has “reshuffled the deck,” causing many to reassess their positions in corporate America. At this point in 2021, businesses are recovering, but the pandemic continues to play a role in business operations. 71% of business owners surveyed noted that they are facing higher costs than before the pandemic. Most respondents indicated that labor shortages have been having a significant impact on their businesses. There are issues both in hiring and retaining employees.
As the report explains, “According to the U.S. Census Bureau, retail spending in September increased 13.9% over the previous year. However, many businesses still struggle to attract or retain employees. In fact, 49% of owners say the labor shortage is impacting their business, while Business Brokers see it as the number one concern facing small businesses.”
Some of the problems related to the issue of labor shortage are not immediately obvious. As it has become common knowledge that employers are having trouble filling positions and are having to increase pay in order to attract new employees, existing employees are taking note. Since existing employees realize that new hires are being hired at higher wages, they are themselves often expecting raises. In turn, operational costs are going up for many businesses.
The fact is that the business owners are still selling and for a variety of reasons. BizBuySell’s statistics also indicate that of buyers who are planning to sell, 20% cite retirement as their main reason for selling, whereas 38% cite burnout as the primary reason.
According to the data collected by BizBuySell, transactions are up 17% over the last quarter, but are still 7% below pre-pandemic levels. However, it is expected that the number of transactions will grow to be well above their pre-pandemic levels in 2022.
Buyers and sellers alike should remember that the pandemic has changed business and will continue to do so in the near future. In short, the business landscape continues to evolve.
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Every business has an array of important legal documents. However, the partnership agreement holds a unique and important place in your business and its future.
The facts are that many people choose to go into business with close friends or family members, and often these personal relationships lead to a forgoing of the partnership agreement. Don’t go this route, as it would be a major mistake. As a business owner, you have a responsibility to protect, maintain, and grow your business.
A well-written partnership agreement can greatly reduce the number of potential problems that your business can face down the road. Establishing a legal framework for the operation of your business is a must.
A good partnership agreement is one in which every major aspect of how the partnership should run is outlined and spelled out in detail. At the end of the day, your partnership agreement should be viewed as a legal document that serves as a key guidepost for the operation of your business. Since a partnership agreement is a legal document, it is essential that you work with a lawyer to create a contract that is specific to your company.
This type of agreement is often a more complex agreement than many business owners would initially expect, and for good reason. Due to the wide scope that a partnership can entail, the partnership agreement can address many different points.
It is important to remember that partnership agreements are designed to minimize misunderstandings and outline how the business should function. Issues such as how money is distributed, what percentage each partner will receive, and which partners are to receive a draw, should all be covered.
However, a partnership agreement does more than simply address how money is to be distributed. It should also outline key operational factors such as what happens in the event of the death of a partner. If that were to occur, for example, who will be in charge of managerial work? Issues such as how business decisions should be made, and how conflicts are to be resolved, are additional important issues that should be addressed.
A good partnership agreement, one that strives to foresee as many problems as possible, serves to protect your business against future disruptions. Every successful operation or enterprise has rules by which it operates, and your business should be no exception.
At some point, every business owner will need to think about selling his or her business. This means you’ll need to be ready to overcome a range of obstacles, as the process of selling a business can be both confusing and time-consuming. This is especially true for those who have not gone through the process before. Let’s turn our attention to some of the key reasons why deals can fall apart.
Buyers, like sellers, enter the process with a variety of preconceived notions about how the process should work, as well as what they consider to be “a great deal.” The psychological factors involved in selling a business shouldn’t be overlooked.
Sellers need to understand the specific wants and desires of the buyer as well as their own psychology.
Even serious buyers may have highly unrealistic expectations regarding various aspects of a business, ranging from its price to its opportunities for future growth. In some cases, they may stall due to the fact they are not quite ready to buy a business and see no urgency in the matter.
Buyers can also be influenced by outside parties, whether advisors or friends and family. In short, sellers may discover that, for all practical purposes, buyers may actually be several people who are forming a collective opinion on issues regarding the business.
A seller’s own psychology can play a huge role in whether or not a business is successfully sold. Many sellers enter into the process without a full understanding of what is involved. This factor, of course, underscores the tremendous importance of working with professionals months, if not years, before you actually place your business on the market. These professionals should include an M&A Advisor or Business Broker.
Another major obstacle is that many sellers have unrealistic expectations about both price and the time frame in which their business can be sold. Sellers should enter the selling process with their eyes open and realistic expectations in place. Be sure to establish a fair price. It’s also important to understand that it may take a year or longer before a buyer is found.
Acts of Fate
Sellers should remember that there are many “acts of fate” that can disrupt a deal. A deal may seem like everything is moving along without problems, only to discover at the last minute that the buyer isn’t able to secure the needed funds as expected.
It is important for all parties involved to realize that until a deal is finalized, problems can still arise. In fact, they can arise from unexpected directions. But it is difficult to anticipate and spot every potential disruption. The complexity of selling a business is one of the main reasons why so many business owners opt to work with a brokerage professional.
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When it comes to finalizing deals, successful negotiations are at the heart of the matter. It only makes sense to think about how to improve your communication skills and to choose a Business Broker or M&A Advisor who is well versed in the art of negotiation.
Cultivating Win-Win Situations
Achieving a win-win for all parties is essential, and there are many components involved. It’s essential to understand what the other party is seeking and to help them also feel as though they succeeded in the deal.
One tried and tested strategy is to lead people through a series of “yeses” by starting with topics and points that can be agreed upon and then working forward. In the beginning of this negotiating strategy, the yeses may come from getting others to agree on what may be seen as trivial things. However, this step works to create the right climate for moving forward so that yeses can be obtained on more important issues.
Maintaining the Flow of Information
The flow of information is a critical aspect of the negotiation process. For this reason, it’s best for negotiations between buyers and sellers to go through their brokerage professionals, rather than conducted directly.
The simple fact is that otherwise there are too many variables and opportunities for something to go wrong, ranging from egos getting in the way to miscommunications. When you choose a qualified Business Broker or M&A Advisor, you’ll be able to place trust in that person to achieve optimal outcomes.
Understand One Another
It is important to keep the other side talking and show that you understand their perspective and the issues they may have. It is in this way that you can encourage cooperation and diffuse resistance in advance.
Ultimately, great negotiations stem from proper strategy, preparation, proper education, enhanced communication, and understanding the other party’s needs. When you and your Business Broker or M&A Advisor foster good communications with the other party, it will enhance the chances of achieving the kind of cooperation you are seeking. This in turn, dramatically increases the chances of achieving win-win outcomes.
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Created in 2012, the IBBA and M&A Source Market Pulse Survey was created to provide business owners and their advisors with a clear understanding of ever-changing market conditions.
Through this survey, it is possible to gain clarity on businesses being sold in Main Street (values $0-$2MM) and the lower middle market (values $2MM -$50MM). Scott Bushkie served as the originator of the Market Pulse Report with IBBA and M&A Source and has continued to play a key role since the report’s inception.
A core finding of the IBBA and M&A Source Market Pulse Survey for Q2 was that there has been a big shift between the turmoil of 2020 and the climate of 2021. Across the spectrum of sizes and price ranges of businesses, sellers now have an advantage or are at least in a better position to sell their business. This is quite different from the situation in 2020.
The market has shifted towards being a seller’s market for a variety of reasons including the fact that many private equity groups are now looking for ways to grow their money. Acquiring an existing business has become an increasingly attractive option to buyers due to the current labor pool conditions.
Buyers are now looking at existing companies as a way to bypass attracting talent. Instead, they can secure that talent via acquiring a new business. In short, many buyers are looking to buy versus organically build to meet their talent needs.
Another reason that now is a good time for sellers is that many buyers are looking to leave corporate America. This situation has likely been accelerated by the pandemic and people seeking to control their own destiny. The increase in global uncertainty has made the idea of becoming a business owner increasingly attractive.
The shift in climate from 2020 to 2021 underscores the value of the IBBA and M&A Source Market Pulse Survey. Through this revealing survey, it is possible for business owners and their advisors to gain a clearer understanding of market conditions and what to expect.
Eventually every business owner will have to turn over control of their business to someone else. There are many options for how this can play out. They range from selling the business to a prospective buyer or selling to a competitor, to turning your business over to a family member. It is key that you start thinking about these options years before you end up in a situation where you actually have to sell.
Working with a Business Broker or M&A Advisor is one way to determine what sales options are optimal for you based on your specific situation. Let’s explore some of the variables you’ll want to consider when you decide to transfer your business to a family member.
There are some significant advantages to transferring your business to a family member. No doubt topping the list of advantages of going this route is the fact that the transfer can be considered a gift. One advantage of this approach is that you’ll reduce your real estate taxes. Depending upon how the agreement is written, you also may be able to maintain some control over the business. For many business owners, this factor can be a big advantage.
One issue you’ll want to explore when opting to transfer your business to a family member is seller financing. Seller financing is a common practice when it comes to buying and selling businesses in general. This type of financing is even more common where transfers to relatives are concerned.
Seller financing opens up the versatile option of implementing a private annuity. A private annuity can serve to spread payments out across a long period of time. This could be a win-win situation for both you and your relative. You would receive a long-term stream of income as a result of ongoing payments. In turn, this decision may very well make ownership more financially realistic for your relative.
Keep in mind that if you sell your business to a relative, this in no way negates the need for a buy-sell agreement. Even when you are dealing with your most trusted family members, legal agreements must be firmly in place. A buy-sell agreement is an invaluable tool that protects everyone involved.
This contract clearly outlines all aspects of the arrangement. Your buy-sell agreement should include such key information including the value of the business, amount being paid, information on which employees will be retained, the current business owner’s level of future involvement, and much more.
Working with Professionals
Ultimately, there are a range of potentially powerful benefits associated with transferring a business to a relative. While it is true that you can expect the IRS to closely evaluate the sale, this should not dissuade you from considering this option. Business Brokers and M&A Advisors are experts at buying and selling businesses, and they understand the specifics of transferring a business to relatives. Working with professionals early in the selling process can help you gain tremendous insight into the best way to proceed.
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After decades of hard work, selling your business can be an exciting and rewarding time. Yet, many business owners overlook the importance of focusing on the legal matters associated with sales. In this article, we’ll explore three of the most significant mistakes sellers make.
1. Use an NDA
The first critical mistake that business owners should be guarding against is skipping the use of a non-disclosure agreement. Simply stated, a business owner should always make sure that a non-disclosure agreement is in place before disclosing to any buyers that a business is on the market.
NDA’s stand as an invaluable way to restrict who does and does not know your business is for sale. After all, the last thing any business owner looking to sell his or her business wants is for competitors or employees to learn confidential information.
2. Hire an Attorney
The second critical mistake that many business owners make is they skip working with an attorney. There is no way around the fact that if you are selling a business, or for that matter anything of significant value, you need to work with a lawyer experienced in the area of sales.
Business owners become accustomed to doing a great many things themselves and learning on the job. There is no doubt that this is a personality trait that has served them well over the years. However, when it comes time to sell your business, there is zero room for “on the job training” or relying on your own instincts. One of the best ways that you as a business owner can protect your future is to work with a lawyer when selling your business. In fact, a Business Broker or M&A Advisor can be a vital resource for helping you to find a proven lawyer with a background in the buying and selling of businesses.
3. Get a Letter of Intent
A third significant mistake that business owners frequently make when selling their business is that they fail to get a letter of intent. Much like an NDA, a letter of intent is a key legal document in the process of selling a business. All too often business owners will skip requesting a letter of intent out of fear of slowing down the process and potentially disrupting a deal.
The letter of intent is designed to both clearly spell out expectations, while simultaneously protecting your interests as a business owner. When a buyer signs a letter of intent, it indicates that he or she is taking the process seriously. This will protect you from wasting your time.
The process of buying or selling a business is complex in many different ways. Whether it is dealing with human psychology, organizing your books, thinking about what information prospective buyers are likely to want to see, or addressing a wide array of legal issues, it is a complex and time-consuming process. Working closely with a Business Broker or M&A Advisor is one of the fastest ways that you can increase your chances of a successful sale.
The post How to Circumvent Three Legal Mistakes Sellers Make appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
You understand the finer points and potential of your business better than anyone; however, that doesn’t mean that prospective buyers will instantly see your business’s various strengths. When you are looking to sell your business, you have two very important jobs. The first is to get your business ready to be sold. A second essential job is to showcase your business’s greatest strengths. At the end of the day, you must be the one to articulate why your business is worth buying. This effort, of course, will be supported by your Business Broker or M&A Advisor.
Understand Who Will Buy Your Business
Most people have never sold a business before and don’t fully understand what is involved in positioning one’s business for sale. The bottom line is that not every business is a good fit for every buyer. Finding the right buyer for your business will greatly expedite the process. This is yet another reason why it is critically important to work with experienced professionals. Business Brokers and M&A Advisors not only know what buyers are looking for, but also what sellers need to do to get their business ready to sell.
How to Navigate Roadblocks
Selling a business, especially if you attempt to do so without professional help, is a very time-consuming and often draining process. Successfully running a business requires attention to detail and focus. Unfortunately, these can both suffer when owners attempt to put on yet another hat and handle the sale of their business.
While you are attempting to sell your business, it is critically important that you maintain normal operations. The last thing you want is to weaken the finances of your business while you are waiting to find a buyer. Remember that it takes months, a year, or even longer to find a buyer for the typical business. Don’t let your business suffer damage in the interim.
Think Like a Buyer
Preparing your business to be sold isn’t as simple as making a few cosmetic changes and calling it day. Instead, you’ll want to think like a buyer.
What would you want to see if you were buying a business? You would want to know a great deal about that business and how it operates, who its key employees are, how likely those key employees are to stay, who the main customers and suppliers are, and the strength of the business location and competitors. Of course, you would also want a very detailed picture of the business’s financial situation.
In short, you would want to clearly understand what the business does and what it’s really worth, how financially healthy it has been in the past, what the business’ prospects are moving forward and, in general, how much effort the business will take to operate. These are exactly the kind of key facts that any serious buyer will want to know. It’s only to be expected that a buyer would expect to learn this information before making a decision.
At the end of the day, working with a Business Broker or M&A Advisor is one of the easiest ways to streamline the sales process. Thanks to years of experience, they already understand the pitfalls that you may experience as well as what is needed to position your business so that you can find the right buyer quickly and receive the best price possible.
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There is the oft-told story about Ray Kroc, the founder of McDonalds. Before he approached the McDonald brothers at their California hamburger restaurant, he spent quite a few days sitting in his car watching the business. Only when he was convinced that the business and the concept worked, did he make an offer that the brothers could not refuse. The rest, as they say, is history.
The point, however, for both buyer and seller, is that it is important for both to sit across the proverbial street and watch the business. Buyers will get a lot of important information. For example, the buyer will learn about the customer base. How many customers does the business serve? How often? When are customers served? What is the make-up of the customer base? What are the busy days and times?
The owner, as well, can sometimes gain new insights on his or her business by taking a look at the business from the perspective of a potential seller, by taking an “across the street look.”
Both owners and potential buyers can learn about the customer service, etc., by having a family member or close friend patronize the business.
Interestingly, these methods are now being used by business owners, franchisors and others. When used by these people, they are called mystery shoppers. They are increasingly being used by franchisors to check their franchisees on customer service and other operations of the business. Potential sellers might also want to have this service performed prior to putting their business up for sale.
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There are unique attributes of a company that make it more attractive to a possible acquirer and/or more valuable. Certainly, the numbers are important, but potential buyers will also look beyond them. Factors that make your company special or unique can often not only make the difference in a possible sale or merger, but also can dramatically increase value. Review the following to see if any of them apply to your company and if they are transferable to new ownership.
Brand name or identity
Do any of your products have a well recognizable name? It doesn’t have to be Kleenex or Coke, but a name that might be well known in a specific geographic region, or a name that is identified with a specific product. A product with a unique appearance, taste, or image is also a big plus. For example, Cape Cod Potato Chips have a unique regional identity, and also a distinctive taste. Both factors are big pluses when it comes time to sell.
Dominant market position
A company doesn’t have to be a Fortune 500 firm to have a dominant position in the market place. Being the major player in a niche market is a dominant position. Possible purchasers and acquirers, such as buy-out groups, look to the major players in a particular industry regardless of how small it is.
Newsletters and other publications have, over the years, built mailing lists and subscriber lists that create a unique loyalty base. Just as many personal services have created this base, a number of other factors have contributed to the building of it. The resulting loyalty may allow the company to charge a higher price for its product or service.
A long and favorable lease (assuming it can be transferred to a new owner) can be a big plus for a retail business. A recognizable franchise name can also be a big plus. Other examples of intangible assets that can create value are: customer lists, proprietary software, an effective advertising program, etc.
The ability to charge less for similar products is a unique factor. For example, Wal-Mart has built an empire on the ability to provide products at a very low price. Some companies do this by building alliances with designers or manufacturers. In some cases, these alliances develop into partnerships so that a lower price can be offered. Most companies are not in Wal-Mart’s category, but the same relationships can be built to create low costs and subsequent price advantages.
Difficulty of replication
A company that produces a product or service that cannot be easily replicated has an advantage over other firms. We all know that CPA and law firms have unique licensing attributes that prevent just anyone off of the street from creating competition. Some firms have government licensing or agreements that are granted on a very limited basis. Others provide tie-ins that limit others from competing. For example, a coffee company that provides free coffee makers with the use of their coffee.
Technology, trade secrets, specialized applications, confidentiality agreements protecting proprietary information – all of these can add value to a company. These factors may not be copyrighted or patented, but if a chain of confidentiality is built – then these items can be unique to the company.
There are certainly other unique factors that give a company a special appeal to a prospective purchaser and, at the same time, increase value. Many business owners have to go beyond the numbers and take an objective look at the factors that make their company unique.
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